During this interview with Dr. George Athanassakos and Ivey MBA and HBA students, Warren Buffett discusses the challenges of picking individual pharmaceutical companies due to the uncertainty of future competition.
He suggests that investing in a group of pharma companies, if reasonably priced, is a better approach since some drugs will always be in demand.
Buffett admits he cannot predict individual winners but believes the industry as a whole offers good returns. He emphasizes that the market already accounts for pipeline developments and that focusing on the broader industry rather than specific companies makes more sense for non-experts.
Here’s an excerpt from the interview:
Buffett: The question is, how do you pick a pharma company when you haven’t got the faintest idea what your competitor in 6 or 7 years will be offering?
You are better off in that business by buying a group, if the group is reasonably priced. They will be using some drugs for sure 5 years from now.
In dollar terms, you don’t know who the winners will be. I know in my own case, I can’t pick winners in the pharma industry.
I can decide the pharma industry as a whole is a pretty good business with good aggregate returns on capital. Purchasing a group, unless you are really an expert in the field, makes a lot more sense.
I don’t care who has a hot item in the pipeline. It will likely be selling for more than a company that is coming off a patent in a year.
The price tends to account for what is in the pipeline anyway. I don’t know which company, but I know there will be more drugs sold on aggregate 5 years from now.
You can read a transcript of the interview here:
Transcript – Warren Buffett Interview with Dr. George Athanassakos and Ivey MBA and HBA students
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
